We use a fully-specified neoclassical model augmented with costly external equity as a laboratory to study the relations between stock returns and equity financing decisions. Simulations show that the model can simultaneously and in many cases quantitatively reproduce: procyclical equity issuance;...

The sub prime crisis in US is the result of excessive amounts of loans made to people who could not afford them and excessive amounts of money thrown into the mortgage arena by investors who were very eager for high return. The crisis represents the other side of a phase when a low rate of...

This paper investigates the performance of a metric that links two measures of critical importance in marketing and accounting. This metric is the market value/sales revenue ratio. We discover several surprising insights when this measure is applied to U.S. markets. First, the long run expected...

This paper reexamines the relationship between financial market imperfections and economic instability. I present a model in which financial accelerator effects come from adverse selection in credit markets. Unlike other models of the financial accelerator, this model has the potential to...

This paper argues that when managers have private information about how productive assets are under their control and receive private benefits, substantial bonuses are required to induce less productive managers to declare that capital should be reallocated. Moreover, the need to provide...

This paper shows that the amount of capital reallocation between firms is procyclical. In contrast, the benefits to capital reallocation appear countercyclical. We measure the amount of reallocation using data on flows of capital across firms and the benefits to capital reallocation using...

This paper assesses the links between money, credit, house prices, and economic activity in industrialized countries over the last three decades. The analysis is based on a fixed-effects panel vector autoregression, estimated using quarterly data for 17 industrialized countries spanning the...

Goodhart and Hoffman aim to examine causal and other links between house prices, liquidity, and activity, and this note comments on their results. One part of the mechanism is via wealth-but arguably house-price changes have little net impact on wealth, although there are collateral effects. The...

Financial frictions have been used to enrich mechanisms transmission in macroeconomics. However, the predictions of real business cycle models of costly external finance imply a procyclical default rate, external premium and relative price of capital which seems at odds with the data. In this...